The industry should be wary of unintended consequences as a result of tough rules governing the short-term lending market, the chief executive of the Consumer Finance Association has warned.
Russell Hamblin-Boone was speaking after the publication of a report by think-tank Respublica which said there is a need to reform the short-term lending market, as currently the rules could ay stop people from getting credit.
He said: “Unfortunately, the tough regulations now governing short-term lenders mean that up to half a million people can no longer access short-term credit, let alone mainstream alternatives further up the credit ladder. And that leads to disenfranchisement.
“The harsh reality, as unpalatable as it may be for some people, is that without access to short-term credit, hundreds of thousands of people are being forced to make some highly undesirable financial choices.
“A well-functioning short-term lending sector should be part of a wider consumer credit market, one which enables people to progress to cheaper and more affordable credit, and provides a safety net to those in need.”
The Consumer Finance Association represents some of Britain’s short-term lenders including QuickQuid, The Money Shop and Payday Express.
The Respublica report claims that if the short-term lending market were to be reformed it would allow people to climb the “credit ladder”. Banning short-term loans, it claimed, would simply drive people into the hands of loan sharks.
David Burford, of Shropshire-based David Burford Independent Financial Advisers, said: “I suppose it depends on what you are trying to achieve by reforming the system.
“I think people have to be able to access small, easy, accessible loans. Reforming the marketplace is important because I do not think people understand the costs and what they are paying.”